2013 (4) TMI 630 - HC - Service Tax

Levy of Service Tax on Chit Business - Scope of the term services - section 65B(44) - Negative list - transaction in money - held that - In a chit business, the subscription is tendered in any one of the forms of ― money as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word service as being merely a transaction in money. This would be the result if the argument that the exclusionary part of the definition in clause (a) is considered to have been enacted ex abundant cautela; If the argument based on Explanation 2 read with the exclusionary part of the definition is accepted as correct, even then the services rendered by the foreman of the chit business for which a separate consideration is charged, not being an activity of the nature explained in the said Explanation, would be out of the clutches of the definition. Either way, there can be no levy of service tax on the footing that the services of a foreman of a chit business constitute a taxable service. No Service Tax - Sr. No. 8 of the Abatement notification no.26/2012 dated 20.6.2012 quashed. - Decided in favor of assessee.

Issues Involved:
1. Whether the provision of services in relation to conducting a chit business is a taxable service under section 65B(44) of the Finance Act, 1994.
2. Validity of Notification No. 26/2012-ST dated 20.06.2012 issued by the Ministry of Finance, Department of Revenue.

Issue-wise Detailed Analysis:

1. Taxability of Services in Chit Business under Section 65B(44) of the Finance Act, 1994:

The primary question addressed in this writ petition is whether the services provided in relation to conducting a chit business are taxable under section 65B(44) of the Finance Act, 1994, which was amended by the Finance Act, 2012. The petitioner, an association of chit fund companies, contends that chit fund services should not be taxable as they constitute a "transaction in money" which is excluded from the definition of "service" under section 65B(44).

The definition of "service" under section 65B(44) includes any activity carried out by a person for another for consideration but excludes activities that constitute merely a transaction in money or actionable claim. The petitioner argued that chit business transactions fall under this exclusion as they are essentially transactions in money.

The court examined the operations of chit funds, noting that they involve pooling money from subscribers, conducting auctions, and distributing the pooled amount minus a foreman's commission. The foreman's role is to organize and conduct these auctions, for which they receive a commission.

The court also considered the Chit Funds Act, 1982, which regulates chit fund operations, and the Supreme Court's interpretation in Sriram Chits & Investment (P) Ltd. vs. Union of India. The Supreme Court had held that chit fund transactions are not loans or borrowing but are special contracts where the foreman acts as a trustee for the subscribers.

The court concluded that the services rendered by the foreman in a chit business, for which a separate consideration is charged, do not fall under the definition of "service" as they constitute a transaction in money. Therefore, these services are not taxable under section 65B(44).

2. Validity of Notification No. 26/2012-ST dated 20.06.2012:

The petitioner also challenged the validity of Notification No. 26/2012-ST, which exempted certain taxable services from service tax but included services related to chit funds, subjecting them to tax on 70% of the consideration received.

The court analyzed the notification and the petitioner's contention that there is no basis for taxing chit fund services when they are not taxable under the law. The court agreed with the petitioner's interpretation of section 65B(44) and found that the notification's inclusion of chit fund services for partial exemption was inconsistent with the statutory provisions.

The court referred to the Education Guide issued by the Central Board of Excise and Customs, which stated that the commission received by chit fund promoters is chargeable to service tax. However, the court concluded that this interpretation was incorrect based on the statutory provisions.

Conclusion:

The court allowed the writ petition, quashing Notification No. 26/2012-ST dated 20.06.2012 to the extent that it included services related to chit funds under serial No. 8. The court held that the services provided by the foreman in a chit business are not taxable under section 65B(44) of the Finance Act, 1994, as they constitute a transaction in money. The writ petition was allowed with no order as to costs.

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